The transformation of the kirana from a cash-based neighbourhood store to a digitised shop has taken centre stage for digital payment companies..
The launch of Reliance Jio Infocomm’s point of sale (PoS) terminal is set to intensify competition among payment companies seeking to win over the kirana store, a key battleground in the digital economy wars. The PoS machine — or card swipe terminal — is integral to Reliance Jio Infocomm’s plan to create an ecosystem around small merchants. Rivals Paytm, PhonePe and GooglePay are stepping up their game with the aim of creating a web of services — payments, supply chain and working capital financing — by integrating these functions around the terminal.
The transformation of the kirana from a cash-based neighbourhood store to a digitised shop has taken centre stage for digital payment companies. QR (quick response) codes were thought to be an apt solution for smaller merchants but haven’t really worked — more was needed. “The Indian retail industry is about $710 billion, of which 90% is unorganised, dominated by 15 million kirana stores,” according to a recent note circulated by SBICap Securities, the brokerage arm of the SBI Group. “Currently,15% of this 15 million can afford the PoS terminal and its technology. The PoS market is significantly fragmented with only 2-3 large players and hundreds of small regional players. Further, there are various market opportunities to create an ecosystem around the PoS terminal by vertical as well as horizontal integration.”
ET spoke to multiple industry insiders to piece together how the space is expected to evolve with the entry of the Mumbai-based conglomerate. Reliance didn’t respond to queries. The company has two products — the Jio PoS terminal and MyJio app — that have been distributed to shop owners. “Jio already has a ready customer base of around 300 million subscribers to its telecom network,” said one of the persons cited above. “With offers and promotions through the MyJio app, they can attract these customers to these stores, which is the plan.”
It’s not just targeting consumers but the supply side as well. Merchants need to order goods from wholesale centres to sell to consumers and there is a vast opportunity in digitising that business. Wholesale arm Reliance Market will be leveraged for this purpose, allowing merchants to use the same terminal to order supplies as well.
While Reliance is building an independent ecosystem, others like MSwipe want to keep their platform open. “The critical difference for us is we are doing it as an open platform allowing any apps to operate and giving freedom to the merchant to buy from any wholesaler,” said Manish Patel, founder of Mswipe, which acquires merchants for card payments. Traditional PoS companies like Innoviti, Pine Labs and MSwipe are also looking to build products to exploit the opportunity.
PhonePe has also created a hyperlocal commerce experience for its users. Having mapped local merchants, it gives attractive offers to drive footfalls to these merchants and push themselves as the preferred payment mode in these locations.
“We are also working to introduce features that will allow merchants to offer customised offers, effectively building a more holistic experience for them,” said Vivek Lohcheb, head of offline business unit at PhonePe.
“The Stores tab in the PhonePe app allows consumers to find different retailers in their vicinity which accept payments through its platform.”
Google Pay will also replicate this model and has already partnered with PoS deployers such as Pine Labs and Innoviti Payments to start with organised retailers and then move to small stores. These local stores, mostly run by individual proprietors, are habituated to managing their businesses in a certain way and it’s difficult to disrupt the relationship they enjoy with suppliers. More than supply and payments, the relationship hinges on a system of credit, which is crucial for these players to survive. “It is partly about supply of goods, rest is credit and that is the toughest relationship to break and rebuild for tech players,” said Patel of Mswipe. “We can only give them credit once they start transacting through us but digital payments by default do not excite them.”
The model could face challenges.
“Reliance Industries seems to have entered the space by providing MPoS terminals to small retailers at a highly subsidised price (actual cost per terminal $170),” the SBICaps Securities note said. “It is likely to provide various integrated solutions around PoS terminals, such as payments with Jio Money and supply chain management. While this move may open up the PoS terminal market significantly, driven by low price points and integrated services, there may be concerns regarding the sustainability of the business model due to high investments, subsidy approach, and depth of consumer touch points.”
The brokerage firm added that with RIL’s presence in B2B retail, payments bank, enterprise connectivity solutions for the small and medium businesses and deep pockets, it may be able to better integrate the various building blocks.
“There are many unanswered questions even now — what is the right device, which device will last longer, what is the right price for the terminal and whether the terminal should be made smarter,” said Abhinav Pathak, CEO, Perpule, an app for express self-checkouts and easy payments for retailers. “It is a huge opportunity and one player cannot win it.”